UPDATE 2-Illinois house votes down CME, Sears tax relief

* Companies have threatened to move to other states
(Updates with Illinois House legislature)

By Andrew Stern

CHICAGO, Nov 29 (Reuters) - The Illinois house voted down a
proposal on Tuesday that would have given $100 million in tax
relief to CME Group and Sears Holdings , which
have threatened to move to other states.

The state house voted overwhelming 99 to 8 to kill the
total $250 million tax relief package that proponents said
spread benefits around to individual taxpayers and small
businesses. Earlier, the state senate 36-18 voted in favor of
the package.

Opponents in the legislature, meeting in the state capital
of Springfield, objected to large companies using their
lobbying influence to push for tax breaks, while smaller
companies get little or no relief from steep across-the-board
tax increases imposed in January.

Some Democrats said it took away too much of the proposed
tax breaks intended for poor and middle-income taxpayers.

CME, Sears and some other employers in Illinois have
threatened to move to other states if they fail to get relief.

CME executives say they have talked to officials in Texas,
Florida and Tennessee about potential moves. A CME spokesman
said he had no comment on the vote.

A Sears spokesman said that the legislature is still
meeting and he would reserve comment until the session ended.
Tuesday is final day of the current legislative session until
next year.

The Sears spokesman said earlier that the company has
received proposals from about a third of the 50 U.S. states,
and executives have visited Columbus, Ohio and Austin, Texas,
to explore possible sites.

Though cash-strapped Illinois can ill afford a reduction in
tax revenue, it has handed tax relief to several companies
including $100 million to Motorola Mobility Inc , $65
million to Navistar and $3.5 million to Groupon Inc
, opponents of the bill said.

"The third wave (of local companies seeking tax relief) is
now forming out to sea," Republican state senator Chris Lauzen
said during the floor debate. "The little guys, the small
businesses, continue to pay. The powerful, the politically
connected, come for their bailout."

The bill's supporters said there was no choice, given the
competitive environment among the states and globally.

Illinois faces billions of dollars in unpaid bills and
billions more in unfunded pensions, and it is one of several
states grappling with a strained budget.

Illinois in January raised corporate tax rates to 7 percent
from 4.8 percent, and individual rates to 5 percent from 3
percent, to close a chronic budget deficit and begin paying
overdue bills.

CME and Sears each employ thousands of people.

CME, which operates the Chicago Mercantile Exchange and the
Chicago Board of Trade, would receive $85 million in annual tax
savings, roughly halving its tax bill. The bill limits state
taxes to income on 27.54 percent of electronic transactions on
local exchanges, a change that proponents said was overdue.

Sears, which owns Sears and Kmart stores, would get a tax
break of $15 million yearly over the next decade as long as it
keeps its headquarters in the Chicago suburb of Hoffman
Estates. The company, which has 6,100 employees in Hoffman
Estates, said it backed the measure.

Under the proposal, all Illinois businesses would have
claimed up to $100,000 in tax credits from past net operating
losses, helping small firms, and a research and development tax
credit would be extended for five years. Individuals would have
seen a bump in the personal tax exemption, the estate tax
exemption would have been raised, and the earned income tax
credit for poor taxpayers would have risen.

The tax relief package was to be funded in the first year
by letting expire an allowance for companies to accelerate
depreciation of capital investments.

Democratic Governor Pat Quinn, who had indicated he backed
parts of the tax relief proposal, also announced a bipartisan
agreement to keep open seven state healthcare facilities
through the fiscal year. The facilities had been slated for
closure.
(Additional reporting by Karen Pierog, Dhanya Skariachan and
Thomas Polansek; editing by John Wallace and Carol Bishopric)

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